GM to approach unions for concessions
DETROIT (AP) - General Motors (NYSE:BGM) (NYSE:RGM) (NYSE:GXM) (NYSE:GPM)
(NYSE:GMW) (NYSE:GMS) (NYSE:GBM) (NYSE:GM) will seek relief from its
whopping $68 billion post-retirement employee health care obligation in
contract talks with the United Auto Workers union, according to an annual
report filed with federal regulators.
In the filing Thursday with the U.S. Securities and Exchange Commission,
General Motors Corp. said health care is its largest competitive
disadvantage, and the burden could grow on a global basis.
The world's largest automaker also said it has determined its internal
financial controls are ineffective and that it is working to fix them. It
has said previously that federal authorities are investigating its financial
The comments came only a day after GM's delayed release of financial results
for the fourth quarter and full year 2006. The earnings report was delayed
as it sorted through accounting issues dating to 2002.
GM told the SEC that it spent $4.8 billion on health care in the U.S. last
year, and that is expected to drop only slightly to $4.7 billion this year.
'We must continue to make structural changes to reduce our U.S. health-care
cost burden,' the company's report said.
GM said it needs to continue to reduce structural and material costs, and
its production must become more efficient in order to return to
profitability. But it said restrictions in labor agreements could limit cost
'Our current collective bargaining agreement with the UAW will expire in
September 2007, and we intend to pursue our cost-reduction goals vigorously
in negotiating the new agreement,' the company said, adding that a UAW
strike or threat of a strike could hamper efforts to cut costs.
GM said it provides extensive pension and retiree health care benefits to
more than 400,000 retirees and surviving spouses in the U.S.
In the filing, the company pointed out that the UAW agreed to retiree
health-care cost sharing in 2005 that reduced its post-retirement health
care obligations by $17 billion, and it capped salaried retiree health care
spending levels effective in January.
But Lehman Brothers (NYSE:LEH PRN) (NYSE:LEH PRC) (NYSE:LEH PRG) (NYSE:LEH
PRF) (NYSE:LEH PRD) (NYSE:GIZ) (NYSE:LEH) analyst Brian Johnson said in a
note to investors that the 2005 agreement eliminates GM's ability to change
retiree health care benefits because it remains in effect until 2011.
A challenge to the agreement remains in a federal appeals court, and Johnson
said any new agreement would need court approval, which he said is unlikely.
A UAW spokesman declined to comment on the filing. GM spokesman Dan Flores
said health care costs remain under discussion with the union.
'We are looking at a variety of alternatives to address the health care
burden. We aren't going to speculate on those options we are exploring, and
we are working with our unions to develop solutions together,' he said.
On Wednesday, Detroit-based GM reported a 2006 fourth-quarter net profit of
$950 million, but the company still lost $2 billion for the year. It also
lost $10.4 billion in 2005, and is in the midst of shedding thousands of
jobs and closing plants to shrink its factory capacity so that it can
compete with Asian automakers, mainly Toyota Motor Corp. (NYSE:TM)
Also in Thursday's filing, GM said it has received subpoenas from the SEC
and a federal grand jury investigating its financial reporting.
The investigations include GM's financial reporting for its pension and
other post-retirement employee benefits and its transactions with Delphi
Corp. (OOTC:DPHIQ) , GM's former parts operation that was spun off as a
GM said it is cooperating with the government in the investigations.
'A negative outcome of one or more of these investigations could require us
to restate prior financial results and could result in fines, penalties or
other remedies being imposed on GM,' the filing said.
The company detailed federal investigations into its transactions with
Delphi and other suppliers in its 2005 annual report filed last year.
The filing said GM has continued to improve its internal controls, but if it
can't fix them permanently, 'It may adversely impact our ability to report
our financial condition and results of operations in the future accurately
and in a timely manner.'
Earlier this year, GM said it had hired outside financial advisers to help
restructure its corporate controller's office.
Peter Henning, a former SEC attorney who teaches at Wayne State University
Law School in Detroit, said the GM filing has standard accounting language
that is a result of the Sarbanes-Oxley law, enacted in 2002 in response to
the wave of corporate scandals.
The required language, which deals mostly with complicated tax accounting,
sounds more ominous than it really is, Henning said.
'It shouldn't be a significant concern for investors because it's more on
the reporting side and not on the recording of transactions,' he said.
But he said GM's problems have persisted and need to be fixed.
'If it continues for a significant period of time, then it becomes a real
concern that they are not able to handle these transactions and they
shouldn't be engaged in them,' he said.
GM shares were traded down 87 cents, or 2.88 percent, Thursday on the New
York Stock Exchange to close at $29.38
The credit belongs to the man who is actually in the arena; whose face is
marred by dust and sweat and blood; who strives valiantly; who errs and
comes short again and again; who knows the great enthusiasms, the great
devotions and spends himself in a worthy cause. Who at the best, knows the
triumph of high achievement; and who, at the worst, if he fails, at least
fails while daring greatly.
T.R. April 10, 1899